This article examines how a landlord of property controlled by the TPA calculates the maximum lawful annual rent increase chargeable to existing tenants, called rent caps.

Residential units subject to the TPA

The Tenant Protection Act (TPA) covers:

  • all multi-unit residential real estate in California unless exempt; and
  • single family residential (SFR) units owned by a real estate investment trust (REIT), a corporation or an LLC with a corporate member.

However, numerous TPA exemptions for multi-family units and conditions for SFRs exclusion reduce the application of the TPA rent caps.

Multi-unit residential real estate exempt from TPA rent caps include:

  • residential units with a certificate of occupancy issued within the last 15 years (a constantly rolling date);
  • a duplex with a unit occupied by the owner as their principal residence at the beginning of the tenancy and has continued to remain in occupancy;
  • units restricted as affordable housing for households of very low, low, or moderate income, or subject to an agreement that provides subsidies for affordable housing for households of very low, low, or moderate income;
  • dormitories constructed and maintained in connection with any higher education institution in California;
  • units subject to rent control that restricts annual increases in the rental rate to an amount less than that set by the TPA;
  • multi-unit transient occupancy housing like hotels and motels;
  • accommodations in which the tenant shares kitchen or bathroom facilities with an SFR owner-occupant;
  • SFR real estate the owner is able to sell and convey as a parcel separate from any other unit, like in a SFR subdivision or condominium (CID) project, except when:
    • the vested owner is:
      • a real estate investment trust (REIT);
      • a corporation; or
      • a limited liability company (LLC) in which at least one member is a corporation; and
    • the owner has failed to give the SFR tenant written notice stating the rental property is exempt from TPA rent increase caps. [CC §1947.12(d); CC §1946.2(e); See RPI Form 550, 551 and 550-3]

The landlord exempt from TPA rent caps notifies the tenant of the exempt status by using a rental or lease agreement form with a checkbox on a provision indicating whether the property is subject to rent limits and just cause eviction requirements. [See RPI Form 550 §10.1 and Form 551 §9.1]

When a residential property does not meet any of the exemption criteria, the landlord is to abide by the TPA rent cap limitations on rent increases charged an existing tenant. The TPA rent caps do not apply to the rental of a residential property to a new tenant who is different from the tenant occupying the unit.

Related article:

2020’s Tenant Protection Act Part II: Rent caps

 

Calculating rent caps for ceiling limitations

Over a 12-month period, residential landlords controlled by TPA rent caps may increase the rental amount by:

  • 5% plus the local annual cost of living increase; and
  • limited to not more than 10% total increase. [CC 1947.12]

The cost-of-living adjustment is taken from the 12-month period ending April 1st in the current year from figures in regional CPI for the region where the rental unit is located. These CPI figures are published by the Bureau of Labor Statistics (BLS).

Here in California, that increase as of April 2023 is:

  • 3.8% in Los Angeles;
  • 4.6% in Riverside;
  • 5.3% in San Diego;
  • 4.2% in San Francisco, according to the BLS.

When the rental property is located in a region not published by the BLS, the Consumer Price Index (CPI) for All Urban Consumers for all items, published by the California Department of Industrial Relations, applies. As of April 2023, this average CPI increase across California is 4.2%.

For example, consider the landlord of a property located in Los Angeles who let their unit at $2,500 per month over the course of a 12-month lease beginning February 1, 2023. Their tenant wishes to renew their lease beginning February 1, 2024. Since the latest CPI report shows Los Angeles had an annual CPI increase of 3.8%, the landlord is limited to increasing the rent by 8.8% (5% + 3.8%). The 10% limitation is not triggered.

Thus, the landlord may raise the monthly rent to no higher than $2,720. Of course, cyclical rental market conditions may not support such an increase at the time the occupancy is extended. Here, the TPA sets the upper limit in enforceable demands for a particular rent increase and when market rental rates are much lower may well force a tenant to rent elsewhere.

The TPA landlord provides the tenant of a month-to-month rental agreement with a 30-day Notice of Change in Rental Terms – For Properties Subject to Rent Cap Requirements. [CC §1947.12(e); See RPI Form 570-1]

Related article:

Updates to the Tenant Protection Act (TPA) tighten loopholes and up enforcement

 

When rent is controlled by local ordinance

A further limitation on rental increases for existing tenants is presented by local rent control ordinances, when their ceilings are less than the TPA’s allowable increases. Here, the more restrictive (local) rent control caps apply.

The TPA rent ceilings also protects tenants using Section 8 housing vouchers to cover some or all of the rent when the unit is TPA controlled.

Monthly rent excludes rent credits and concessions

When calculating the maximum rent increase allowed by the TPA, the landlord’s base monthly rent, called the gross rental rate, does not consider:

  • any rent-free months during the term;
  • rent discounts whether or not taken;
  • concessions, such as discounted monthly payment for timely payment (actually, this is an add-on late charge or build up in permitted rent control increases exceeding market rates which is waived when rent is paid on or before the due date); or
  • other credits offered to the tenant during the previous 12 months – whether or not accepted.

However, the rental or lease agreement will identify all the concessions, incentives, discounts and credits provided to the tenant and their dollar amount.

Consider a landlord who lets their unit subject to the TPA at a rate of $3,000 per month to a tenant in Riverside. However, during the first month, the landlord provides the tenant with a discounted rental rate of $2,000, an incentive the landlord labeled a cost of moving reimbursement or bonus.

After 12 months of tenancy, the tenant chooses to renew their lease. The landlord increases the rent by 9.6% over the rent rate of $3,000 for the month prior to the increase to $3,288 (5% + the annual CPI increase of 4.6%).

The tenant claims the landlord was limited to increasing the rent to $3,192 (9.6% of the initial, discounted rental rate of $2,000).

Is the landlord’s rent increase enforceable under the TPA?

Yes! The landlord’s calculation of the rent cap under the TPA is made based on the regular rental rate — without any consideration for rent discounts or concessions. [CC §1947.12(a)(1)]

Related article:

Letter to the Editor: When may a landlord evict a properly performing tenant?